Sasol was the top mover on the JSE Tuesday, with its long-languishing share price surging 12% after investors appeared enamoured by a capital markets presentation, where a three-year turnaround strategy was outlined to restore the group operations back to optimal performance.
The share price was trading at R81.75 on Tuesday afternoon on the JSE, this after the price has fallen steadily over three years from R391.02, in line with the group’s weaker financial performance.
CEO Simon Baloyi admitted in his presentation that their performance was below par over the last four years, but a three-year turnaround plan had been formulated to reduce debt, restore the local operations and position the international chemicals business for potential further value unlock initiatives by the end of the decade.
He said the group, a major employer in South Africa and a contributor of about 5% of South Africa’s GDP, had recently conducted a “deep dive” review to see what was holding its performance.
He said a new reset strategy for the international chemicals business would target it reaching a cash positive before financing position in the 2026 financial year.
In South Africa, the feedstock destoning project was expected to come on stream at the end of this year and it would result in a step change of performance, from a situation where the deteriorating quality of coal was impacting the efficiency of the gasifier plant fleet, he said.
Many changes across the entire value chain and fleet of gasifiers had also been implemented and these were expected to see the group capable of restoring production to previous optimum levels.
Sasol CFO Walt Bruns said the dividend policy had also been changed in light of the uncertain macroeconomic environment, in that the debt threshold of $4 billion that had to be reached before dividends are paid, had been reduced to $3bn.
He said they did not anticipate paying dividends until the 2027 or 2028 financial years, He said the group was in a strong liquidity position and had no immediate debt maturities. He said they could not wait for macroeconomic conditions to improve, and they were confident that the management interventions being implemented would lead to significant cost savings and a stronger operational performance.
Sasol Chemicals vice president Antje Gerber said the division, which sells products to 88 countries, had performed worse than its peers in recent years, notwithstanding the structural global decline in the demand for chemicals from China and Europe in particular.
There would be further pressure on margin globally with the coming on stream of new chemical manufacturing capacity from the 2025 year onwards, she said. Sasol Chemicals had achieved EBITDA margins of 6.4% in 2024, while its,peers had averaged 12.5%.
However, she said there was a great deal that the group could do to improve profitability and business resilience, to address high overhead costs and inefficiency in the division, and the reset plan had been developed in the last few months.
This plan had involved implementing a go-to-market strategy and changing the focus from being volume driven to marketing chemicals of greater value. The global asset footprint was being reviewed, and already four plants, in the US, Italy and Germany had been closed.
The third element of the reset strategy was to implement a leaner and streamlined organisation structure, and the launch of various operational excellence plans.
She said it was a difficult decision to close or mothball plants, and the decision was only taken at plants where there were weak markets, financial losses with no sign of recovery and global oversupply of the chemical concerned. She expected the full benefits of the asset closures would be seen in the next financial year.
Sasol executive vice president of operations and projects Southern Africa Victor Bester said the operations at Secunda was “not a broken business” as “we are dealing with specific issues which we are working on to address.”
He said an extensive investigation into the under-performance of the Southern African business was undertaken, and two leading problems identified were escalating costs and a decline in coal quality. He admitted the groupp had not responded in a timely manner to the geology of their coal mine reserves becoming increasingly complex.
He said the destoning project would significantly improve coal quality, there would be increased drilling for improved reserves interpretation, and the group’s coal requirements would in time also be supplemented with external coal sources – these were part of the measures to secure coal resources beyond 2030. Several potential coal suppliers had already been short listed. He said they were also working to restore the availability of the fleet of gasifiers to optimum levels.
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